By Tiernan Ray

Evercore Partners‘s Patrick Wang today writes that he expects the Philadelphia Semiconductor Index to underperform the broader indices this year, with Intel (INTC) perhaps suffering some setbacks in its data center business selling chips into servers, but making progress in sales of “baseband” wireless chips against Qualcomm, among a slew of predictions for the new year.

Wang writes that “After a phenomenal +40% in 2013, the SOX underperforms and settles into the 475 – 500 range.”

“We see the modest EPS growth and extended valuation gap closing.”

Among several events for Intel, whose shares Wang rates Underperform, with a $20 price target, the company will face a challenge from a 12-inch iPad/hybrid computer from Apple (AAPL), Wang predicts:

Arriving in fall ‘14, Apple goes Enterprise with an 12” iPad. Powered by the A8 chip (perhaps 4C), this expands ARM’s reach and, once again, transforms the traditional notebook market as we know it. Expect a 2-1 hybrid – think iPad + MBA – similar to how most iPads are used in the workplace and in the same spirit of MSFT’s Surface. We discussed A7 in detail, the benefits of 64b, and why it makes sense in our note. Two obstacles: (1) Microsoft Office not just Office 365 and (2) local storage. This would hit Intel in an area of strength – enterprise NBs – and open up the monopoly to price competition, a common theme for Intel in 2014.

Wang’s point is that the Intel CPU “represents a significant portion” of the cost of a laptop, such as Apple’s MacBook Air. He shows a comparison of what he estimates are costs for the Air versus an iPad, which uses Apple’s own A-series processors:

Among other challenges to Intel, servers running chips using the ARM Holdings (ARMH) intellectual property will start to see some large deployments in cloud computing, eating into Intel’s franchise:

2015 will be the “Year of ARM Server” but we expect initial shipments and deployments this year. ARM SOCs could represent >10% of server chips on a run-rate in 4Q14 [...] Next potential catalysts: Open Compute Summit in January, Computex in June [...] INTC DCG profitability begins to show cracks and may even start contracting. To better address the Cloud, INTC may launch a new set of SKUs (tweener of Atom / Xeon). See #2. INTC faces a catch 22: (1) lose share and maintain margins / ASPs or (2) maintain share with lower ASPs / margins. This marks the first time since mid-2000s they’ve faced formidable competition in server. Over that period, share and ASPs have gone up 1000bp and $150 (or 5% CAGR), respectively, as Intel enjoyed a monopoly. It only gets tougher ahead. Pricing power has swung from the supplier to the customer as cloud providers (GOOG, AMZN, FB) are able to buy cheaper white box servers (direct ODM, Tier 2 OEMs), forcing INTC to customize and adapt to their needs.

At the same time, though, Intel will score some more customers for its manufacturing services beyond Altera (ALTR), which could include Apple, Cisco Systems (CSCO), Qualcomm, Broadcom (BRCM), and Nvidia (NVDA), he opines. Of those, Cisco, Broadcom and Nvidia seem to him the most viable.

Qualcomm faces incursions into its dominant baseband franchise, from Intel and many others. But he thinks it may be a make-or-break year for Broadcom, whose shares he rates Overweight:

Win: BRCM executes on LTE and LTE-A while successfully integrating connectivity. They ramp a handful of low-end and mid-range smartphones in addition to the Samsung design win. Lose: If unsuccessful, we estimate an exit would reduce op-ex by at least $320mn – adding 30c to earnings power.

Nvidia may follow the route of Texas Instruments (TXN), abandoning some of the battle for its Tegra mobile processor in smartphones and tablets to instead focus on automotive and embedded applications:

T4i delivers an integrated modem but lacks connectivity solutions, relegating Tegra solutions to the shrinking merchant high-end market. o NVDA’s GPU has not provided enough differentiation against other chips using ARMH and IMG graphics. We see the decision to license the GPU as a failsafe plan. We like the auto / embedded business and think $450mn in sales by 2016 (current: 25% of Tegra) is achievable.

He rates Nvidia stock Underweight, but raised his price target to $13 from $12.

Wang lowered his rating on Intersil (ISIL) shares to Underweight from Equal Weight, while keeping intact a $9 price target. He’s waiting for “signs of structural improvement” in the second half of this year, and at the moment thinks investors are betting too heavily on a turn-around in PCs boosting Intersil’s fortunes: “Historically ~25%, ISIL’s PC exposure is sub-20% now so investors may be overestimating the benefit. Importantly, the PC segment is forecast to decline to ~$20mn / Q by mid-14 from the ~$30mn level today.”

He also reiterates an Overweight rating on shares of Monolithic Power Systems (MPWR), and raises his price target to $40 from $36, writing that it “remains the best organic growth story in analog [chips] and should deliver over 2x analog peer growth in 2014.”

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There are 18 comments

JANUARY 2, 2014 2:22 P.M.

Anonymous wrote:

pure speculation. the apple "challenge" in particular is way off base, based on his imaginary roadmap of Fall introduction, and availability of Office.

JANUARY 2, 2014 2:29 P.M.

Baron's wants me back wrote:

12-inch iPad/hybrid computer from Apple

LOL - I suppose Intel calls it 2 in 1
A laptop when you need it - a tablet when you want it

JANUARY 2, 2014 3:03 P.M.

Utongo wrote:

Apple do a 2-1 hybird? Really. Are we going to see a "toaster converge with a refrigerator" too (quote from Mr. Tim Cook himself)? ARM server has a way to go - especially since one of the more credible ARM server stories busted last week after $100+ mil investment (Calxeda)....

JANUARY 2, 2014 3:27 P.M.

WASHINGTONY wrote:

Apple's will only get the same minimal use in businesses that they've always had due to their lack of support for older products and legacy systems. Apple doesn't care if their latest whizbang ruins compatibility with your older hardware and software.
The Maverick's operating system "upgrade" just broke compatibility with two of my hardware accessories and at least half a dozen of my third party software programs AND OLDER VERSIONS OF THEIR OWN BUNDLED SOFTWARE. That kind of stuff makes Apple poison in a production environment that has to run for years.

JANUARY 2, 2014 3:28 P.M.

HangLai wrote:

Tiernan Ray: I am sorry, your affiliate WSJ just quoted Ashok Kumar of Maxim to say that Intel is doing great with a price target of $29, while you quote Evercore’s target Intel at $20; is there a conflict here? Please explain. Intel price target @ $20 will not be due to Apple ipad getting into the enterprise market nor due to ARMH getting into the server market, since they still will be in the negligible market share in these markets in 2014 or in the near future. Intel actually has better price/performance/power efficiency than ARMH 64x server, while ipad is not an office productive hardware, as Microsoft said in its advertisement, unless ipad has the minimum MS office suite and creative graphic packages, ipad is just a play console for most people.

This guy is crazy. He wrote a similar hilarious article yesterday with tons of spelling and grammar errors. I don't trust this guy what he says or writes...

JANUARY 2, 2014 3:37 P.M.

Anon wrote:

Wang's $20 price target and underperform rating is OLD news- this is more regurgitation for the New Year. If you repeat it often enough perhaps your New Year wish will come true Mr. Wang. With INTC price at ~$25 wonder how much money he made on INTC short calls in 2013. The ARM enterprise and server pipe dreams are not going to materialize (pun intended) any time soon!

JANUARY 2, 2014 4:34 P.M.

dan wrote:

The new stuff yo are talking about are going to be built by Intel dumbass wait for CES

JANUARY 2, 2014 5:11 P.M.

Errrg wrote:

Apple at work? Urrrgh, I hope I don't have to use that dump at work.

JANUARY 2, 2014 6:10 P.M.

EdTechExpert.com wrote:

I've been saying for several years Apple needs to do this. I, for one (in the education industry), would welcome it.

When iPad was first announced, I was excited because I thought this is what it was going to be: a touch-screen Macbook Air. Then I found out it couldn't access 30% of websites (due to no Flash, Java, etc.), and had no USB support. And I realized it was, more or less, useless.

I have been ranting against iPads for schools since they came out (see my videos "Just Say NO to iPads for Education!"), but there are SOME benefits of tablets, so hybrids make a heck of a lot of sense for productivity. Right now my Surface Pro 2 is the best device I've ever used, but if Apple could unveil an iOS/OS X hybrid (especially if it came with active digitizer) -- for a reasonable pricetag -- I would absolutely change my tune.

JANUARY 2, 2014 6:11 P.M.

EdTechExpert wrote:

I've been saying for several years Apple needs to do this. I, for one (in the education industry), would welcome it.

When iPad was first announced, I was excited because I thought this is what it was going to be: a touch-screen Macbook Air. Then I found out it couldn't access 30% of websites (due to no Flash, Java, etc.), and had no USB support. And I realized it was, more or less, useless.

I have been ranting against iPads for schools since they came out (see my videos "Just Say NO to iPads for Education!"), but there are SOME benefits of tablets, so hybrids make a heck of a lot of sense for productivity. Right now my Surface Pro 2 is the best device I've ever used, but if Apple could unveil an iOS/OS X hybrid (especially if it came with active digitizer) -- for a reasonable pricetag -- I would absolutely change my tune.

JANUARY 2, 2014 9:45 P.M.

EdTechExpert.com wrote:

Did you know: My office is in a converted dumpster... You wonder why no one else ever thought of it. Anyway, the dumpster is where I found my first Surface computer. Call me if you want a deal. I'll throw in a custom made scratch and sniff encyclopedia of the universe and the downtown SF area. Think of it as two for one.

JANUARY 3, 2014 10:40 A.M.

TM wrote:

Can someone from apple call me when I will be able to install my Inventor, AutoCad, My Electronic workbench and other applications which I need for my work and I will consider spending some cash on your product. For now all you make is toys and not serious product.

JANUARY 3, 2014 11:30 A.M.

flock wrote:

wang is a tard. but i doubt eeven he is shorting intel.

JANUARY 3, 2014 3:04 P.M.

val wrote:

Since y'all hate Apple SOO much why do you waste your precess Windows time reading Apple related articles?.
Funny how how such a toy is readily seen in newsrooms and NFL playbacks at al industries.

JANUARY 3, 2014 5:47 P.M.

Anonymous wrote:

A bigger iPad alone doesn't make it better. To make the iPad less of a consumption only device to a creativity and productivity device it needs a precision pen for note taking, painting, drawing, etc. and more than 1GB DRAM.

JANUARY 4, 2014 1:36 A.M.

John wrote:

I have already heard this twice. It's not news obviously so why post an article on it.
But let's say it may be true. First of all, like Utongo stated, Tim Cook himself stated "it's like converging a toaster with a refrigerator". Didn't make sense to me what he meant by that. But if this Evercore analyst is credible, then Apple is going after something that may be a success for Intel. In other words, the hybrid laptop Intel has been pushing is showing some serious success for Apple to backtrack and actually follow Intel's lead while eating their words.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.